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Trading companies are the most widespread form of businesses and act as channels for manufactures to reach into far flung markets. Trading companies are complex organizations that have their own culture, diverse functions and customer relationships. They can range from small entrepreneurial set ups to professional companies with focus, and there could be large global trading companies like the Japanese sogososhas. In India, despite trading being controlled by business communities, as the size has grown, these companies have structures like any other companies, and have lost the spirit of their founders. Some thrive and grow, while others just get by. This article brings to focus the common challenges among trading companies, and key drivers that differentiate the good companies from the average ones.

With offices in multiple locations, warehouses, strong logistics capabilities, back offices and a very strong finance (especially since they survive on wafer thin margins), there is a high premium on efficiency and response. Managing and owning the relationships with buyers and sellers is a core function for any trading company.

The function of engaging customers

Sales and business development teams build & own relations on the customer front. This is the core asset and a competence that will enable revenue growth. Many trading companies treat this function casually. They hire sales reps mainly for the contacts they bring along. Despite initial success, such reps tend to underperform or leave after a period. There is no professional sales engine that will systematically acquire & build a new customer base. Even among the large firms, most of the reps work as individuals. There is no organizational backing. Even for large million dollar projects, there is rarely an organization backing for the rep in terms of the sales strategy and required intelligence to convince the customer.  For a group of companies that are solely dependent on being sales driven, poor sales structuring is surprising. Some of the more successful companies appoint the sales rep as a one point contact to the customer. All matters regarding product, delivery schedule, status, import clearances, after sales support  are handled by the sales rep. Customers cannot be expected to be calling sales, despatch clerk, logistics clerk, and CEO of the trading company to have problems addressed. Servicing customers and making procurement easy for them should be the motto of great trading firms.

Sales has to be aligned to the products, markets and strategy of the firm. Sales objectives need to be set in terms of targets for brands, product lines, new customer addition, cross selling to existing customers, market coverage etc. When these targets get aligned with company strategy, all sales activity and processes will follow suit. Then it is matter of implementing the right processes, metrics and reviewing for success.

Reaching out to customers

Even among firms whose revenues run close to a hundred billion dollars, marketing is quite rudimentary. They have not been found to be regularly reaching out to customers to inform them about the wide range of available products. Suppliers of top brands and products can usually provide a lot of thought leadership material. Content therefore need not be generated from scratch. Informing markets about these products regularly, and positioning the trading services on top of customer minds is a rhythm that needs to be implemented diligently. Trading companies have also not been found to be regularly doing dip sticks on changing customer preferences. Their customer insight, understanding of preferences and trends is usually poor. It is only after sales collapses, that the product line is shelved and perhaps another added without sufficient analysis. Hence Sales and Marketing are two areas that trading firms can strengthen and drive strategically to move to a position of strength.

Manage your suppliers

The other major strength of a trading company is supplier relationships. In areas like plastics, chemicals, high end branded products and precision machinery, only a few countries have strong manufacturing capabilities, and  manufacturers rarely bother to serve all markets. They prefer to focus on their core areas. Most economies however still need these products and it is only through the trading company that such products can be obtained in the required quantities. If the trading company is not strong with supplier relationships, customers do not get served. Larger companies have teams in their home countries who build strong supplier relationships. They are almost like an extension of the suppliers’ sales team. The level of integration and relationship is very high. But mid size and smaller companies are more transaction oriented, and do not invest in this area.  In many mid to large trading companies, a relationship is struck between the CEO and the supplier and they start to represent the supplier in the market. However, managing supplier relationship goes far beyond top level friendship. The trader needs to build a working relation with sales, marketing, operations and despatch departments of the supplier. This needs a deep integration of systems, constant access to information and ability to work as a team across two companies. Companies make the mistake of relegating this function to a logistics or procurement manager, who is mainly concerned with a particular consignment but not the relationship as a whole. It’s only when relationships are mapped and kept warm that there is effectiveness on the supply side. This is crucial since delivery times, immediate despatch from stock etc are committed and executed only for preferred buyers. For a trading firm to retain and build loyal customers this becomes important. Japanese trading companies typically have very strong relations with suppliers. They invest in suppliers sometimes, and have dedicated teams managing these relationships. When number of suppliers or brands grow, implementing a structure and a robust process to manage suppliers is crucial.

Managing logistics

Logistics, shipping and trading are synonymous. Singapore grew as an efficient trading hub because of the sophistication of logistics. An effective logistics function involves the ability to analyze and predict the total supply chain costs from the source of supply to its final point of distribution. Gone are the days when this was calculated by the venerable shipping clerk. Modern trading companies have people trained in management accounting and have an ability to calculate costs for various options and have alternate options to fall back upon. They manage risk and delight the customer. They are adept at calculating both international and domestic logistics costs by product and delivery route, accurately calculate all the applicable duties, tariffs, and other customs-related costs while factoring in any preferential trade agreements. More advanced capabilities would include the ability to model and estimate inventory levels and total carrying costs. Stocks need to be maintained close to the market to make immediate deliveries for breakages, replacements etc. The ability to analyze past data, calculate a minimum order quantity for stock and be data driven is necessary. However, most trading companies have junior staff with no experience handling such a critical function. They are unable to answer even basic questions like – Where is it? When will it arrive? Is the expected date different from the planned date? They have no visibility. They are not improving sourcing time and delivery times. No one works on process improvement. They are not constantly finding ways to improve landed costs. All of these need to be looked into and worked upon. It is continuous improvement. When employees are trained, and skills to manage the global supply chain are imbibed, growth will be easy and scalable.

Strategic planning

On the product front, most trading companies grow organically adding new lines and suppliers arbitrarily. They do not have a coherent strategy in choosing products and markets based on predictability, profitability, sustainability and risk. Supplier, brand and product strategy has to be analysed and planned carefully. How many brands could be carried in the portfolio without creating confusion? How many product varieties can be carried?  When a full range of products need to be offered to the customer, is there an ability within the organization to integrate the offering from various suppliers and co-ordinate? Line extensions, brand extensions, multi-brands and new brands are strategic choices that need to be made. Should relations with suppliers be exclusive or non-exclusive?

In the area of product or service itself, most offer the core product as they receive it from the supplier merely acting as agents. But there could be opportunities to provide value added services, like special prices, soft loans, credit period, service and support, consulting, system integration, etc., that will lead to an augmented product and hence immense value addition. Support is another area that companies can create structures and processes to excel, thus keeping customers delighted, and thereby helping build and position the brand of the trading company. Once strategic orientation is set, it should translate into a list of activities that are easily executable by all functions within the organization.

Invest in Technology

Modern IT systems provide real time data, visibility into status of orders, shipments, stocks, sales etc. An effective CRM system helps manage customers, pipeline and the geographically spread out sales team effectively. It helps review existing opportunities, and allows insights into sales and marketing activities. With a good ERP, stocks across warehouses can be instantly viewed, optimum reorder levels can be set, the minimum order quantities can be calculated and synchronised with Demand patterns. Profitability of shipments can be calculated accurately. This helps in fixing the right discount levels, and in customer negotiation. Integrate the systems with suppliers and study their supply patterns, and get visibility into status of shipments, take corrective action, and keep customers happy and loyal. Technology products be it a CRM, an ERP or any lightweight cloud based product, help fast track the trading business, and should be used effectively.


Most trading firms are an aggregation of a diverse set of people with no belongingness to the organization. The HR functions in small and midsize trading companies are very rudimentary, and rarely are employees engaged effectively. Since the underlying culture of the trading firm is one that works on commission, the thinking is that while employees are being paid, nothing should matter.  Human beings are diverse, and there cannot be one incentive plan for all. Most trading firms use a straight line commission payout curve for sales people, and worse, they cap the commissions. To encourage overachievement, there is need to relook at commissions, and perhaps ratchet up the percentages for higher sales targets. An appropriate mix of fixed and variable salary can be designed based on whether it is a commodity business that is more predictable, or a project business that is longer term in nature. While commissions can motivate sales reps, there also need to be bonuses based on firm performance to motivate other staff, so that everyone partakes in the firm’s success and work as a team. Trading firms are as complex as any other type of organizations, and investments have to be made to build effective Performance Measurement Systems that align the performance with the objectives of the company. Training is another important aspect. While product training is a must for all employees and especially so for sales, there needs to be leadership training that enables them to learn not just about the products, but also about competition, the market, suppliers etc. Training should enable them to plan how to be more effective in interacting customers and suppliers. Right Training coupled with the right incentives, will certainly unleash the potential in any organization.

It is not too difficult to build a world class trading organization that can be self sustaining, once the foundation blocks are strong. Most trading organizations are short term oriented. But once they realize their strengths, and elevate themselves to see the forest, rather than the trees, there is clarity in direction. Emphasis needs to be on organization development and implementing best practices, so that the business becomes predictable and sustainable. Unrelenting focus on customers and suppliers coupled with strong internal capabilities will bring in the much needed performance advantage and unleash growth.

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